The risk-laden process of launching a new business would seem, at its core, an entrepreneurial act. Yet, none of the former Andersen partners who birthed Huron Consulting, West Monroe Partners, The Claro Group, and Protiviti, a wholly owned subsidiary of Robert Half International (RHI) Inc., fit the traditional entrepreneur profile: While they certainly have strong sets of entrepreneurial muscles, they are not, at heart, traditional entrepreneurs.
Their decisions to launch new ventures owe much more to their positive experiences during decades of Andersen employment, the timing of the firm's dissolution, and their need to leave behind a legacy than to any instinctual need for more control, new challenges, or personal enrichment.
Shared Cultural Heritage
"I could sit here all day and tell you all the ways in which Andersen was a great culture," says Gary Holdren, chairman and CEO of Huron Consulting, the firm he launched in early 2002 and took public in late 2004.
When he describes those cultural elements, Holdren sounds as though he's channeling Leonard Spacek, the former – and highly influential – firm leader who succeeded founder Arthur Andersen in the late 1940s. Under Spacek, Andersen's commitment to charitable giving and volunteer service increased markedly. Spacek initiated firm matches of staff charitable contributions, a move he regarded as a savvy business decision.
"Typically, the board members of large nonprofit organizations are CEOs and CFOs of major corporations," Holdren notes. "If you're at a board meeting and the name Arthur Andersen comes up – or, now, the name Huron comes up – the board members say, 'Wow, those people are good to the community … they're good people.'"
That's a valuable impression to inspire in the consulting profession, where most executives buy services from individuals they trust – from "good people." Nearly every dollar Huron earns can be traced back to a client's personal relationship with a Huron consultant. A convenient link on the firm's home page lists all of the Chicago-based and national nonprofits Huron and its employees help fund (including $500,000 to Hurricane Katrina relief).
"Look at the amount of contributions that Arthur Andersen made here in Chicago," Holdren gushes. "It was somewhere between $6 million and $8 million per year. That's something highly unique from Andersen that we're trying to replicate here at Huron."
Holdren and his former Andersen colleagues who launched new consultancies also strive to replicate the qualities of stewardship that helped define Andersen's culture. Not coincidentally, each of the three new firms started by former Andersen partners is based in Chicago. (The Claro Group, which primarily assists corporate policyholders in handling large and complex insurance claims, previously rented a floor in the same building its founders occupied during their Andersen careers.) The city and, more specifically, the St. Charles training facility are where they learned how to be consultants (these partners worked most recently in Andersen's consulting businesses).
| Andersen's Mentor Health Larger-than-life mentors feature prominently in the consulting profession. Anyone who benefited from Bill Bain's guidance, for example, can recall a time when he helped them grasp an important truth by sketching out the concept on the back of a napkin. Andersen's culture seems rich with colorful mentors, and the former Andersen partners who've launched their own firms strive to create cultures that are ripe for that guidance. "I had a mentor named Ray Ruona," says Dean Fischer, president of West Monroe Partners, who spent 23 years with Andersen. "He possessed a massive physical and intellectual presence. Born and raised in Montana, Ray was a former Army guy who chewed tobacco. He was a devout student of leadership. Now, I would not say that my leadership style is even remotely military, but Ray taught me a lot about how to motivate the troops." Before taking the helm of Hitachi Consulting as president and COO, Michael Travis logged 11 years with Andersen, where his first boss, David Ewing, left a lasting impression on him. "They called him 'The Bear,'" Travis recalls of Ewing, who as the partner in charge of Andersen's consulting practice in the Dallas market expanded his unit from 13 people to about 400 in roughly a decade. "He could be intimidating, but he had such a commanding presence that he gave the client a lot of confidence when he met with them. He gave me a lot of responsibility early on, and I grew up quickly under his leadership." Travis, Fischer, and other former Andersen partners try to create cultures that encourage mentoring. Mark Hargis is managing director of The Claro Group, which grew out of Andersen's economic and financial consulting practice. "Taking care of your people means investing in them in both tangible and intangible ways," he says. Junior-level consultants need opportunities to increase their skills, but they also need face time with senior colleagues. At Huron Consulting, a group of 15 or so promising midlevel consultants are nurtured each year by senior partners, through a series of lunch and dinner meetings with client CEOs, on the finer points of developing client relationships. Huron CEO and chairman Gary Holdren brought the idea for the program with him from Andersen, where he worked for 30 years. "You have to spend time with your consultants," Hargis agrees. "You explain issues to them and make sure that they have an opportunity to feel good about performing the tasks you ask them to perform. Spending time with them really helps them to grow and take their careers as far as they want to take them." Just ask Fischer. "Much of who I am today as a consultant," he adds, "is because of my relationship with Ray." |
"Everyone who walked out of the two-week training at St. Charles possessed a common understanding about what was important to Arthur Andersen and what our values were," recalls Dean Fischer, who launched West Monroe Partners in 2002, following two years with Andersen and a year-and-a-half with a software start-up.
Stewardship featured prominently in that understanding and also in Andersen's partnership agreement. The contract included a "stewardship" section in which new partners vowed to leave the firm in better condition than it was in when they joined.
"If you take that responsibility literally, it drives your decision-making in an extraordinary way," says Fischer, who acknowledges that some of his former colleagues did not live up to their responsibility. "In the early days of the firm, it was very much about doing what was right to make the firm a better place. I try to do the same thing here."
Fischer points to his firm's ownership structure (100 percent employee-owned) and the fact that it has turned down work when the revenue opportunity did not provide a healthy environment for his consultants. "This is all about the people," he explains. "For me, this is about working with and mentoring and growing and teaching and providing opportunities for other young professionals." Stewardship requires mentorship (see "Andersen's Mentor Health") and personal development: If consultants are to make good on their responsibility to strengthen the firm, they need to groom more – and more talented – successors.
Everett Gibb, a founding managing director of Protiviti, notes that the 54 partners from Andersen's risk consulting practice who formed the new RHI subsidiary wanted to maintain the best elements of Andersen, including "the prizing of intellectual capital and the development of people." "We are about figuring out about what people are passionate and then letting them focus on that because we know they'll excel at it," Gibb says.
Legacy as a Career Decision
Given the size of Andersen at the time of its collapse (more than 150,000 employees worldwide, including many hundreds of partners), the number of consultancies that the firm gave birth to is minute. The majority of partners joined other consulting or accounting firms, left the profession, or retired. The decision to create new firms in the wake of Andersen's demise appears to be more of a function of timing and a desire to be part of a legacy than an entrepreneurial itch. Robert Hogan, a Ph.D. psychologist and the president of Hogan Assessment Systems in Tulsa, OK, says that few professionals in their mid-40s to early 50s suddenly experience entrepreneurial urges. He says that the small group of Andersen partners who launched new ventures "sound like individuals who really believe in their profession."
They, along with Gibb and Mike Hargis, managing director of The Claro Group, also happened to be involved with a highly entrepreneurial culture in Andersen.
"During my time there, I was able to start from a blank sheet of paper at least five or six types of consulting businesses," says Fischer, who launched service lines based on forensic accounting, ethics consulting, litigation, and government-contract consulting. Fischer and his fellow "entrepreneurs" had the luxury of the firm's financial backing in each venture. Still, he adds, "I had in many respects excited a lot of my entrepreneurial instincts while I was at Andersen." So, the decision to start – or, in Gibb's and Hargis's cases, spin off – new entities was less risky than most entrepreneurial ventures.
Fischer, who left Andersen well before it collapsed, says that his timing was fortunate. "I thought, 'Hey, this is money that I might not have otherwise had – let me take the risk of doing this,'" he recalls. "I also had a fairly high degree of confidence in my ability to start up a consulting business in a fairly low-risk way. I had done it enough times to know how to do it." Holdren points out that a normally formidable obstacle to launching new consulting firms – noncompete agreements – happened to be absent in this case, thanks to Andersen's dissolution. Private equity firms approached Holdren prior to 2001 and asked him to consider starting a new firm.
BOX START:
The Right Time to Launch
Choosing the right time to leave a consulting firm to start a new one sounds a lot like figuring out when to have children. You're never ready, and when you think you finally are prepared, it's probably too late. Dean Fischer left Andersen well before its dissolution, when he was 46 years old. He joined a venture-capital-funded software start-up. Three years later, at 49, he launched West Monroe Partners, a Chicago-based consulting firm that primarily serves middle market clients. "By the time consultants have gained a series of business experiences that have really reduced the risks [of being an entrepreneur], they are at a point in their life when they don't want to take on a whole lot of risk," Fisher points out. "It's an unusual situation: About the time you are really prepared from a business perspective to potentially be a very thoughtful and successful entrepreneur, you don't have the appetite for it. When you don't have a wife and kids, you can jump into the deep end, gulp down some water, crawl out, and start again. That was not the life stage most Andersen partners occupied when they suddenly had to find work in 2002. Fischer was lucky, or smart, in that he had left Andersen before the meltdown and was financially secure enough to launch an employee-owned consulting firm in a way that he felt posed relatively minimal risks. Most of the other partners chose to join other consulting or accounting firms. "If they had been at Andersen when it went down, they had probably taken a financial hit, and simply didn't have the appetite to take on any more risk," Fischer notes. "Meanwhile, they were very, very capable and probably had some entrepreneurial instincts." Andersen's collapse represents a highly unique situation in which tens of thousands of seasoned consultants were forced to quickly decide on the next phase of their careers. It also offers a lesson: No time may feel like absolutely the right time when starting a new consulting venture. At best, consultants considering starting new firms can engage in some serious self-reflection and use those insights to guide their decision. "The kind of intellectual curiosity you have when you're young and starting your profession asks, How good can I be and what can I ultimately achieve?" Fischer adds. "At some point, and it happened to me around the time I was starting West Monroe Partners, your curiosity shifts to: What do I like to do, and what do I want to do with my life and my profession?"
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"I was interested, but it would have been very difficult at that time," he says. "It would have been impossible to bring with me the people I wanted because of noncompetes and hard to get people to leave the comfort of Andersen because of how much money they were making there. If you're going to start a company, you want to start it with people you know, trust, and have confidence in." As a longtime Chicago-area resident, Grant Levitan, a Ph.D. psychologist and managing director of RHR International, has developed an understanding of Andersen's people and culture. "They are my neighbors," he says. "When I get in the limo to go to the airport, I'm riding with someone from McDonald's or Andersen." He believes that the decision of a handful of former Andersen partners to launch their own firms after the Enron scandal "probably has more to do with life stage than inherent personality variables." Besides, if these partners were the classic entrepreneurial personality – with a high need for control and risk and a low need for affiliation, inclusion, and office politics – "they never would have joined Andersen," Levitan points out. He also notes that the partners must have understood the value of Andersen's culture or else they would not have been as successful as they were at the firm. That assessment rings true in discussions with Hargis, Fischer, Holdren, and Gibb, particularly when the notion of legacy arises.
"In the future, I would like to be sitting in my rocking chair while looking at the sunset in Hilton Head … and feeling proud of leaving Huron Consulting as something that has a brand name and that people say is one of the best consulting firms in the world," says Holdren. Hargis uses the L-word liberally when describing The Claro Group's future. "We want Claro to be a legacy business," he notes. "When I decide to saddle up and retire, I want the people who are now employed to own the business. Our aspirations for the business are about building a legacy owner-operated business."
Same Background, Different Business Models
Although all four firms arose at similar times and under fairly similar circumstances, the business models each of the founders chose differ considerably. And each of the founders points to his business model as a crucial means of establishing his new legacy.
Huron Consulting is a public company. West Monroe Partners is an employee-owned partnership; Protiviti, a wholly owned subsidiary. The Claro Group, formerly Andersen's economic and financial consulting practice, began its post-Andersen existence as a wholly owned subsidiary of LECG before becoming a private partnership in September 2005.
Hargis and his colleagues considered hanging their own shingle in June 2002, but "we would have needed outside capital at the time, and we did not want to do that," he says. LECG allowed the practice to operate as a business group within the company. "LECG was a very good fit for us," Hargis says. After three years, though, he and his colleagues felt that they needed to return to "some of the values that we had grown up with at Andersen and that we felt fit better in a private-partnership situation as opposed to a public-company situation."
So far, the transition from LECG to The Claro Group appears as smooth as the previous one from Andersen to LECG: 100 percent of the employees and clients who followed remain with The Claro Group after the buyout. "We weren't starting a new business," Hargis explains. "We just transported our business from one model to another model."
Protiviti's creation also qualifies as a transport. In late 2001, Andersen asked Gibb to evaluate whether an appropriate buyer might purchase the U.S. operations of the firm's risk consulting and internal audit practice. Gibb and his fellow partners assembled a set of criteria for a purchase. They wanted to continue doing the same work, maintain sufficient autonomy to manage the business, receive financing to cover payroll for the start-up period, and build a new brand. Gibb spoke with every Big Four firm, as well as Capgemini, Booz Allen Hamilton, and others. "Ultimately," he says, "RHI offered us the greatest alignment with our goals and objectives. Robert Half knows how to build brands. They really stepped up to the plate for us."
BOX START:
The Classic Entrepreneurial Mind-set
Traditional entrepreneurs, says Grant Levitan, a Ph.D. psychologist and managing director of RHR International in Chicago, "would have gone out on their own in their early 30s after they accumulated some training and experience." That grouping does not describe the former Andersen partners who launched Huron Consulting, West Monroe Partners, and The Claro Group in Chicago after Andersen closed its doors. "Traditional entrepreneurs" does, however, describe Scott Demorest (age 37), Peter Lizotte (32), and Dave Kelleher (33), the former Andersen managers (none were partners) who started Portland, OR-based Acme Business Consulting in 2002. Demorest, Lizotte, and Kelleher each left Andersen relatively early in their tenures for different firms in the high-tech sector. Around the time of Andersen's collapse and the economic downturn, the three reconnected and decided that Portland, a high-tech town reeling from the dotcom crash, was ripe for a consulting firm with top talent and a unique service-deliver model. Of course, only high-energy, risk-courting entrepreneurs (who happened to be starting families at the time) would have seen an opportunity in such a challenging economy. Accenture and Deloitte Consulting closed their Portland offices, which Acme's principals saw as gap that needed to be filled. Plus, there was a wealth of consulting talent looking for work. Acme Business Consulting manages large projects for clients – sort of a general contractor model molded to the consulting profession. Acme's senior project managers lead a team staffed with client managers. So far, the model and business have been a success: The three-man firm has expanded to a current staff of 12 consultants, and Demorest expects it to expand to 20 by year-end. Despite their relatively brief tenures with Andersen, the culture there had a lasting effect on Acme's principals.
"We are all generally very pro-Andersen," Demorest notes. The trio tweaked a few aspects of the Andersen approach that they were not comfortable with (like airplane travel – all of Acme's customers are located within 50 miles) and then put their own "nonleveraged" spin on service delivery. "We also learned the value of talent at Andersen," Demorest adds. "Everybody who was on the team there went through a pretty intense interview process, and it paid off. We've probably turned Andersen's screening process up a notch here. For every 200 applicants, we probably hire one. We run them through three sets of interviews and a four-hour case study before we pull the trigger on any hires."
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Protiviti has distinguished itself as a leader in risk consulting and internal audit services at a time when – thanks in part to Andersen's collapse – there has been an extremely high demand for those services. Forrester Research recently recognized Protiviti as one of only four "leader" firms in enterprise risk management (ERM) services.
"We were very fortunate," Gibb says. "It's very difficult to start something anew, and it's particularly difficult if you have to retrain your people. We had a set of talents, and Robert Half provided an environment where we could go use those talents." Holdren and Fischer hold opposing opinions on the optimal ownership structure, yet both former Andersen partners believe that their chosen models help to avoid the problems that hindered Andersen late in its illustrious existence.
The pressure of meeting the expectations of shareholders and Wall Street analysts helps prevent publicly owned consulting firms from becoming complacent, Holdren says. "You can get a little lazy in a partnership," he explains. "Let's say that your people are doing pretty well and you can make $500,000 working 10 months out of the year. You start to think, 'Hey, that's a good life.' Here, I have to be efficient quarter after quarter. Being efficient makes you make better business decisions. Sometimes they can be short-sighted and sometimes they won't, but I really like the discipline that having to run your business very efficiently demands."
Fischer laments the fact that so many large consulting firms are now publicly held. He believes that consultants suffer in this model because they "are a distant fourth in the pecking order" behind the shareholders, clients, and management, respectively. "I didn't do this to make money," he says. "I did this because of the people. I take that from my days at Andersen, particularly my early days when Andersen was one of the most people-friendly and people-empowering companies out there. I think that's why it was so successful for so long. West Monroe Partners has a culture that is very, very similar to my early days of Arthur Andersen, where it was all about the people."
Despite those differences, Holdren and Fischer share a similar affection for their former culture and colleagues.
"I wish more people had done what we did," Holdren adds. "Very few of my colleagues and peers who left Andersen are very happy now. They are some of the top professionals in their fields, and many of them have to finish their careers [at other firms] in a not-very-happy state of mind. That is sad for me."
By summoning the connections and entrepreneurial skills honed over long tenures with one company, Fischer, Holdren, Hargis, Gibb, and those who joined them from Andersen have assured themselves happier conclusions to their careers.
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